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December 11, 2007
"I want my money."
Jimmy Cusack gazed out the window of his office in the Empire State Building. Most days he savored the southern view of downtown Manhattan. To the east was Goldman Sachs, its Broad Street headquarters an impregnable fortress in the world of finance. To the west was Lady Liberty, her harbor a vast cluster of skyscrapers rising from the sea. New York was a city that attracted great fortunes--and epic brawls to manage them.
There were times inside his hedge fund when Cusack could taste the adrenaline. He reveled in the rush of competitors waging war from their granite towers, new-age monuments that celebrated the triumph of capital. There were no cease-fires sixty-one floors below. The struggle to win clients never stopped, and the ethos was "Kill or be killed" among soldiers suited in the battle rattle of Armani pinstripes and Gucci loafers.
Today was no ordinary day. Those four words, "I want my money," haunted Cusack's thoughts. Gone was the crooked smile. The creases around his lips, sometimes mistaken for a good-natured smirk, had long since vanished. His eyes a bitter blue, Cusack's face resembled the dark clouds outside his bluff of sixty-one stories.
The ambush was cold and ruthless. "Here's how it is," the lead investor said. "Tomorrow morning, James, you'll get a FedEx. Not the afternoon delivery, but the one at ten. Inside are eight redemption notices. Each one is signed and notarized, ready to go. I want my money. So do my friends who invested in your fund."
"Who else wants out, Caleb?"
"Everybody I put in."
"Not Whitney," insisted Cusack.
"What about Gould?"
"Everybody," Caleb repeated. "By my calculations, our stake totals one hundred and twenty million dollars."
"You agreed to a lockup," argued Cusack. "We're talking eighty- five percent of what I manage and--"
"My lawyers say your documents are a joke."
"You talked to Ropes and Gray?"
"What difference does it make? Just get us our money, James."
"That the way it is?" Cusack sounded hard, but he was wobbling inside.
"My hands are tied."
"Yeah. To an ax."
"I may run for governor," said Caleb. "I can't ask my buddies for contributions, not when they're losing their shirts at Petri Dish Capital or whatever the hell they call your hedge fund."
"And you think pulling your money is smart in this market?"
"Not open for discussion."
Nearly six hours had passed since then. The markets were closed. The sun was setting. And Cusack racked his brain for a Hail Mary solution, a glimmer of hope, anything to save his business from redemptions that would leave him with less than $20 million to manage.
It could take years to replace $120 million from Caleb and his fellow deserters. Until then, revenues from the remaining $20 million would not pay the light bill. Cusack had no cash left to fund operations. He had gone "all in," Texas Hold 'Em style, every chip in the pot.
With the grim reality of Caleb's words unfolding, Cusack lacked his characteristic focus. His thoughts drifted from New York's office towers to the "Irish battleships" of his youth, the three-family homes of Somerville, Massachusetts.
Jimmy had always been the scrappy kid with promise. Long ago he traded membership in Somerville's blue-collar CIA--Catholic, Irish, alcoholic--for a career on Wall Street. He was thirty-two and Ivy educated, a graduate of Columbia and Wharton. His pedigree included a one-year Rotary Fellowship in Japan and five years at Goldman Sachs. He was his family's hope for the future, the son, the entrepreneur his parents had backed.
Those were yesterday's dreams. Cusack's money-management business was going down. It was taking on water through a Titanic-sized hole in the hull, the lead investor's words tearing at him still. "Nothing personal, mind you."
Caleb, you made it personal.
"And we expect you for Christmas dinner, James."
Wednesday, December 12
The following night a biting wind roared down the street named Hverfisgata. It gusted through doors and windows, through all the nooks and crannies of the stark buildings that lined the street. The air smelled of salt and sea and the damp wrath of Arctic squalls. The windchill registered icebox-cold under the dark Icelandic sky.
Seeking cover, three Americans from Connecticut ate dinner inside Hverfisgata's 101 Hotel. The men relished their hiatus from the trading floors of Greenwich, where drip bags of gloom emptied into the markets. Their trip to Reykjavik was no boondoggle. The three had focused on business all week.
Their back-to-back meetings, insufferable at times, resembled a funeral procession of Icelandic bankers and low-ranking bureaucrats. The marathon tête-à-têtes about liquidity and leverage were benumbing. But they paid off. The fieldwork confirmed their instincts and gave shape to a scheme that had been percolating for months.
Hafnarbanki, Iceland's most celebrated bank, was vulnerable to financial attack. Headquartered ten miles south of Reykjavik, the bank had borrowed $45 billion. It was too much debt, more than twice the size of Iceland's entire economy. Much of that $45 billion came from overseas. If European depositors lost confidence and closed their accounts, Hafnarbanki would collapse under the weight of its financial obligations. It was a bank on the brink.
All it needed was a little push.
Not one of the men discussed their scheme, not at first, not during the main course of bloody lamb. They were pros, wizened hedge fund veterans, and far too wily for premature celebrations. Counting money jinxed trades. Backslapping was gratuitous. But they could taste each other's silent dreams. They could almost touch the expectations of a sure thing that would net them tens of millions.
It was not until after dinner that the three relaxed, after a $15,000 "vertical tasting" of 2001, 2002, and 2003 Screaming Eagle cabernet sauvignon. After the wine located self-control switches on two men. After a conga line of port chasers turned all three faces beet red. They split the tab and moved to the hotel's sleek bar, where conversation turned to their business in Iceland.
"Tomorrow," announced the tallest money manager, the one with the Stanford MBA, starter wife, and four kids, "I'm shorting Hafnarbanki at twelve hundred."
"Tall" believed Hafnarbanki's price was about to crash. His plan was to borrow stock and sell at twelve hundred kronur right away. If Hafnarbanki fell to five hundred, he would buy at the lower price, return stock to the lender, and book a tidy profit of seven hundred kronur per share.
"I'm in," agreed the second man. He had a Napoleonic build, MIT degree in math, and hot-action mistress. "When we're finished, these Vikings will know Hafnarbanki as Bank Hindenburg."
"If you ask me, it's more of an H-bomb," scoffed Tall. He ordered three more ports. "Cy, what do you think?"
"That you two have mouths like billboards. Keep your voices down." Cy was the most sober and the most alert, the money manager with a history degree from NYU. He smiled Joe Biden bright, his good mood at odds with instinctive caution.
"Hey, we're with you," soothed Napoleon, raising his glass to Cy. "We can't lose, right?"
Cyrus Leeser grew up in Hell's Kitchen, where he survived Irish Catholic kids and eluded "poison people." Outside his family's apartment on West Fifty-fourth, the heroin addicts were forever scratching through life in search of scag or the five-way--a cocktail of heroin, cocaine, methamphetamine, Rohypnol, and alcohol. He made it to college, graduated, and began a steady if unremarkable career as a stockbroker with the "thundering herd." Leeser left Merrill Lynch in 2000 and cofounded LeeWell Capital. That was the beginning of his spectacular rise.
Most estimates placed Leeser's net worth around $75 million. Some hedge fund insiders argued it was more. He owned a sumptuous estate and was married to Bianca Santiago, bestselling author and his trophy wife of sixteen years. He was an accomplished pilot, a philanthropist, a proud father of twin daughters attending Andover, the elite boarding school. He ran big money and recruited new investors every day, vowing never to set foot on West Fifty-fourth again.
"The only risk," Napoleon suggested, "is that three hundred thousand people live in Iceland. And they're all related."
"It's like some kind of Nordic Appalachia," Tall agreed. "Webbed feet and shit."
"These cousins can band together," Napoleon continued, "buy stock, and prop up Hafnarbanki's share price."
"Don't say the name of the bank," warned Cy. "What is it you don't understand about keeping your voice down?"
"You worry too much," scoffed Napoleon. "We're performing a community service."
"How so?" asked Tall as another round of drinks arrived.
"By shorting dumb money so it goes away." Napoleon clinked glasses with Tall and raised a toast, "To Hafnarbanki."
Cy winced as he noticed a bookish man a few seats down the bar.
Furrowed brow, sleek black glasses, Siberian-blue eyes--Siggi Stefansson pretended to read his novel. The Americans annoyed him; the bottomless drinks, the clinking of glasses, the laughter that occasionally rocked the bar. It was all he could do to concentrate.
Siggi cursed the tallest foreigner under his breath. Then he cursed his girlfriend Hanna, who always ran late. The Icelander was forever sitting in bars, alone, reading books and drinking himself into drunken stupors with people he didn't know. Or drinking with Ólafur. His second cousin was a regular at every gin mill in downtown Reykjavik.
Siggi could not help but eavesdrop, especially because the three Americans were discussing Hafnarbanki. He deposited his money there. It was the pride of Iceland, a national treasure, a legacy from a few fishermen who abandoned their nets in the 1930s for the glory of international banking.
The Americans almost seemed giddy. Siggi closed his book, taking care to dog-ear the page, and sipped his Guinness. He studied the man named Cy, who shushed the other two men from time to time.
Cy was in his late forties with deep crow's-feet and basset-hound eyes. He was an imposing figure: muscular build, five foot eleven at least, and jet-black hair that flopped over his ears and touched his shoulders. He spoke little. But he conveyed power. Siggi judged Cy to be a man who could handle himself in any bar, whether drinking, fighting, or womanizing.
The other two Americans, however annoying, intrigued him. Drunk or not, they sounded smarter than most tourists. He heard the word "short" every so often, but he was not sure what it meant. Their toast seemed friendly enough:
That was when Leeser caught Siggi's eye. "Are you from Reykjavik?" the long-haired American asked. He was all smile and bleached teeth. He spoke in a disarming manner, as though asking for directions.
"Yes." Siggi pushed his black glasses up from the bridge of his nose.
Come on down and let me buy you a drink."
Leeser prided himself on one skill. He could read people. When he was a kid, the talent helped him duck punches, both on the streets and inside his apartment, which was a hell all its own. Within thirty-five minutes, Cy was convinced he knew everything about the bookish Icelander with the craggy face and wavy blond hair.
Siggi was the youngest of three children. He was thirty-four and engaged to be married. He had been dating his fiancée for nine months and three days. He reminded the American of a young Michael Caine.
Cy knew Hanna's name. He knew her studies were a source of conflict. Siggi wanted to get married right away. But Hanna's law degree came first as far as she was concerned. Planning a wedding, Hanna argued, was out of the question given her course load at Reykjavik University's School of Law.
Leeser's interest in the Icelander had little to do with affability. It was all about damage control. Cy wondered what Siggi had heard, whether he was a threat. Ferreting out information, though, required finesse. The American gave a little to get a lot.
At one point, Siggi asked, "What brings you to Iceland?"
"I run a hedge fund."
"I don't understand much about them," Siggi confessed.
"Few people do," Cy replied in his most disarming, empathetic voice. "In my opinion hedge funds have three things in common. We manage money. We usually charge twenty-percent fees on profits. And we're less regulated than other financial institutions, because we each work with limited numbers of wealthy investors."
"But what do you mean by 'hedge'?"
"Fair question. 'Hedge' is a misleading word. It makes us sound like money managers who protect against downside risk--in the same way landlords insure buildings against fire. I do. But not everybody does. Like I said before, hedge funds manage money for wealthy investors."
"Well, that leaves me out," Siggi noted, his voice wistful. "I have no head for stocks and bonds anyway."
Cy relaxed. And then he discovered a bonus. Siggi owned a small art gallery, two blocks away. The Icelander traveled extensively, spoke fluent Russian, and catered to an exclusive clientele of Eastern Europeans. This discovery thrilled Leeser, a true lover of art, a collector with eclectic tastes.
Cy covered both his home and office walls with emerging masters from everywhere.
"Would you like to see my gallery?" Siggi offered. "We can go when Hanna gets here."
"Not me," Napoleon replied. "I'm going to bed."
"Me either," agreed Tall. "Cy's your guy. He wants to become Stevie Cohen."
Tall was referring to the founder of SAC Capital Partners. Cohen, a billionaire and king among hedge funds, owned the greats. His collection, worth $700 million by some estimates, included masterpieces by Edvard Munch, Pablo Picasso, and Andy Warhol.
"I'm small time compared to Cohen," Leeser added in a wistful, self-deprecating way. "Maybe one day."
Siggi and Cy could have yakked about art all night. But Leeser stayed on plan and forced himself to learn more about the Icelander, to ensure the art dealer was no threat.
Cy knew Siggi was a happy drunk, incapable of holding his liquor. He knew the names of Siggi's parents, not to mention his older brother and sister. He knew the Icelander felt a special affinity with his second cousin. There was only one detail Cy missed.
Cousin Ólafur worked for Hafnarbanki. He was the managing director of strategic development, the senior executive charged with mapping out the bank's competitive strategy. When hedge funds attacked, his job was to mow them down.
Click here to read the next chapter of The Gods of Greenwich.
Excerpt from Norb Vonnegut's The Gods of Greenwich. Minotaur Books: New York. 2011.
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